Regional Financials: First Republic (FRC)
Farther down SNLs list of analysts’ favorite banks, FRC is less about banking and more about wealth management. It currently has $45.1 billion in assets under management (AUM) with most of it acquired organically.
In the first quarter, FRC grew its wealth management assets under management by 8.6% over Q4 2013 and 30.3% year-over-year. Since July 2010, its wealth management AUM have grown by 36% compounded annually. In Q1, its investment advisory fees amounted to $33.3 million — 33% higher year-over-year. This might not seem like a lot when compared to $307 million in Q1 interest income from loans, but the margins in wealth management are much higher.
Since its founding in 1985 First Republic has gone after high-net-worth (HNW) clientele by providing top-notch customer service. FRC’s approach has been so successful that its net promoter score (the number of people promoting your company less the number of detractors), according to Satmetrix, is 55%, which is three times better than its bank and financials peers.
According to an FRC study of high-net-worth markets, there are 2 million HNW households (defined as a $1 million or more in investable assets) in America. First Republic’s five core markets — Los Angeles, San Francisco, San Diego, New York and Boston — represent 55% of those 2 million households. Yet with the exception of the Bay area, where it has captured 13.5% of the HNW market, FRC has no more than 1% to 3% market penetration.
The bad news is this might never change. The good news is there’s lot of business to capture in all four of these other cities.
To me, that spells opportunity.